Gold stocks

There are a number of reasons for gold stocks to outperform many of the market indices (except US Treasuries) in 2010 including US, world, emerging market equities, commodities, dollar, US corporate bonds, etc. Amidst the global market uncertainty and volatility, gold is viewed as a store of value (or "wealth insurance" as termed by Peter Hambro, owner of a Russian gold miner), diversification tool, inflation hedge, dollar hedge, etc. Investment demand makes up about 26% of the demand for gold (a rising share) while reduction of Central Bank gold sales this year has also been more supportive of price.  Furthermore, very low real interest rate is supportive of rising gold prices.

One way to get exposure is through ETFs (GLD for gold and GDX for gold stocks). GDX is a basket of gold companies so will be subject to equity market risk. Below is a table to show where some of the major gold companies' enterprise value are trading relative to their reserves and resources ($/oz), a useful gauge of their relative valuation.  The companies are ranked by the highest (most expensive) to the lowest (least expensive).


Gold companies EV/Reserves ($oz) EV/Resources ($oz) EV/(Reserves+Resources) ($oz)

CIA DE MINAS BUENAVENTURA-IN (BVN) 913.4 1235.1 525.1
AGNICO-EAGLE MINES LTD (AEM) 603.9 975.5 373.0
GOLDCORP INC (GG) 653.6 753.0 349.9
GDX 434.8 471.8 216.2
BARRICK GOLD CORP (ABX) 351.8 528.8 211.3
NEWMONT MINING CORP (NEM) 350.6 467.5 200.4
YAMANA GOLD INC (AUY) 449.7 335.9 192.3
RANDGOLD RESOURCES LTD (GOLD) 495.7 282.2 179.8
IAMGOLD CORP (IAG) 473.5 239.1 158.9
KINROSS GOLD CORP (KGC) 217.0 336.6 131.9
NEWCREST MINING LTD (NCM) 328.4 185.8 118.7
ANGLOGOLD ASHANTI LTD (AU) 238.6 75.1 57.1
GOLD FIELDS LTD (GFI) 136.1 40.7 31.3
HARMONY GOLD MINING CO LTD (HMY) 172.8 26.6 23.1

Source: Company websites, Bloomberg, reserves/resources data as of year-end 2009, enterprise value as of Aug 19, 2010.

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